My Review of Alexander Karp's and Nicholas Zamiska's " The Technological Republic: Hard Power......"

Technology in Service of the Republic

Alexander Karp, the CEO of the artificial intelligence data analytics firm Palantir and his head of corporate affairs, Nicholas Zamiska have written a scathing attack on the consumerism of Silicon Valley and a plea to use American technology to defend our country. They view the current ethos of Silicon Valley as hostile to government and society, especially to using technology in national defense. This is the complete opposite of the World War II ethos of science adviser Vannevar Bush and Robert Oppenheimer of Manhattan Project fame. At that time and into the 1950’s and early 1960’s technology was harnessed in defense of the nation. In contrast the valley’s current avatars are more interested in shopping apps. They forget that Silicon Valley got jump started by the need for integrated circuits to support the ICBM programs.

Karp and his colleagues, on the other hand, are more interested in protecting our troops from IED’s and for detecting terror threats in advance. To them if a marine needs a better rifle, the Pentagon should order it. Similarly if the a marine needs better software, the Pentagon should order it. 

Karp blames the cultural relativism of the 1970’s on for the valley’s distaste for America. By that the authors mean the valley leadership believe that our culture is not inherently superior to other cultures. Hence, it is not worth fighting for, yet they live under a defense umbrella that enables them to create great wealth. As a result, you can read Karp and Zamiska as a call to arms for Silicon Valley to utilize its unique talents to defend our Republic.

At times the book gets very pedantic. It seems that Karp has read every German philosopher in the original German. That slows down the read, but it should not deter anyone from getting the fundamental message of this very important book.

 

My Amazon Review of Tom Nicholas' "VC: An American History"

An Ode to Risk Taking

Harvard Business School Professor Tom Nicholas adds some new insights into the history of venture capital in general and the role of the Silicon Valley venture capitalists in particular. The story has been told many times before, but Nicholas adds some new insights. Especially interesting is his view that the 19^th Century whaling industry operated in a similar manner of venture capital today where specialized agents booked the captains and the ships and received funding from investors willing to take a chance for a big payoff. Just as today the agents were experts in their field and were very active in recruiting talent and what is most interesting the level and pattern of returns in 19^th Century whaling was very similar to that of the recent history of venture capital.

Nicholas also discusses the all-important role of government, first as a purchaser of high technology equipment and second in creating legal structure that enabled pension funds to invest in venture capital and allowing carried interest gains to have favorable tax treatment for the venture capital promoters. He also discusses the now forgotten role of government sponsored small business investment companies that both created an interest in venture capital and developed executives who would go on to bigger and better things.

He is quite good at describing the early roles of Georges Doriot’s American Research and Development who hit it out of the park with its $70,000 investment in Digital Equipment (later worth $350 million) and such Silicon Valley greats as Arthur Rock and Tom Perkins. He highlights the key mantra of the Silicon Valley venture capitalists as “people, technology and markets.”

Where he goes astray is that either some of his numerical examples of the gains achieved by the venture capitalists versus the market as whole is wither not clear or may even be wrong. He also shines on the huge investor losses taken by public investors as a result of the 1990’s bubble. The VC’s were hardly innocent in this process. Further he doesn’t really go much beyond 2000 to gives us a picture of where venture capital is today. To me it seems most VC’s are chasing asset-light software and although they talk a big game on green technology they are not really there. Why? Green technology especially carbon capture is extraordinarily capital intensive. Lastly Nicholas has to make his obligatory pitch for more gender diversity in the industry.

Simply put Nicholas has given us a good history, but it could have been better.

For the full amazon URL see: https://www.amazon.com/review/RH523PJHU6QL1/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of Steven Brill's "Tailspin: The People and Forces Behind America's Fifty-Year Decline - and Those Fighting to Reverse It"

The Unprotected

I wanted to like “Tailspin”. Author Steven Brill had very nice things to say about my alma mater Baruch College in its efforts to create successful paths for its student body that is largely made up of immigrants and children of immigrants. To mention Baruch in the same sentence as Amherst warmed my heart. He had nice things to say about the Financial Leadership program of which I am a co-founder. As an example of the program’s success is that the son of a night cleaning lady became an analyst at the major investment bank where she worked.

He starts off with a very simple thesis that the meritocracy created by opening up the Ivies to all comers in the 1960s created a new self- perpetuating elite. That is all to the good, but then he conflates this with campaign finance, the decline of unions, the smug civil service of the Veterans Administration, the “rubber rooms” of the New York City teachers’ unions and the financialization of the economy. All of that has been said before. In fact he is a bit out of date because the big driver of income inequality has shifted from Wall Street to Silicon Valley over the past ten years. His representations of the economy would have been far more accurate in 2006 than 2018.

More importantly Brill leaves out perhaps the most important factor in perpetuating his meritocratic elite, assortative mating. It is this mating process where investment bankers marry lawyers and doctors marry doctors and so on that is at the heart of creating a new establishment. In my opinion leaving out assortative mating is a major failure of his book. Brill also spends too little time on the role elitist zoning plays in perpetuating income inequality.

Brill also fails to cite Wall Street Journal columnist Peggy Noonan for coming up with the terms “protected” and “unprotected.” It came from her 2016 award winning column. To me the first two chapters are great and then the book goes downhill from there.

The full Amazon URL appears at: https://www.amazon.com/review/R2JNZF3OA414UZ/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of Michael Storper's et.al. "The Rise and Fall of Urban Economies: Lessons from San Francisco and Los Angeles"

Winners and Losers in the New Urban Economy

Michael Storper et. al. have written an important book on the impact of the “new economy” on the growth and decline of major urban centers. It is destined to become a classic in regional economics and urban planning. The lead author is a professor of urban planning at UCLA. The authors use the Los Angeles and San Francisco metropolitan areas from 1970 to the present as a contrasting case study of how these two regional economies adapted to the transition from an industrial economy to an information economy.  To Storper and his coauthors San Francisco succeeds because it has a far more adaptable and open source business ecology than the more enclosed corporate world of Los Angeles. Further San Francisco’s advantage is augmented by a more far seeing and cohesive business/government community that adopts public policies to enhance the information economy. To the authors it is these two critical factors more than the role of immigration and the 1990s collapse of aerospace in Los Angeles that account for the stunning differences in economic performance.

To be sure these are valid points, but to my mind the authors over-state their case. Simply put the Los Angeles of 1970 suffered from the “tyranny of an installed base” and lacked the high gross margin businesses that could withstand the increasing tax and regulatory pressures coming from local government and the state of California.

Now let’s look at the data. In 1969 the Los Angeles CMSA had approximately four million workers with 1.1 million of them engaged in manufacturing. At the same time the San Francisco CMSA had approximately 2.1 million workers with fewer than 400,000 engaged in manufacturing. Los Angeles was a manufacturing region, in fact the largest in the U.S.. If that is all you knew and you posited that the revolution in global trade would bring U.S. manufacturing to its knees in the coming decades, then you would predicted that San Francisco would easily outperform Los Angeles. By 2013 employment in Los Angeles increased to 7.6 million, but manufacturing jobs plummeted to 700,000. By contrast San Francisco employment increased to four million jobs while manufacturing barely declined to 360,000 jobs.

What Los Angeles had was low margined traditional industrial, aerospace and apparel jobs, while San Francisco had much higher margined technology and specialized production jobs. To further prove my point the worst performing Bay area county was the one with the most traditional manufacturing jobs, Alameda County. Although people talk about the economic juggernaut of Silicon Valley few talk about the success of Alameda County’s major city, Oakland. Although it is an exaggeration, economically speaking the Los Angeles of 1970 looked a lot more like Oakland than San Jose.

One of the advantages Silicon Valley had was a legacy of the politics of the 1960s. Recall that at that time the primary buyer of advanced electronics was the Department of Defense and Silicon Valley vigorously competed with Highway 128 in Boston and Texas for the business. With the Kennedy-Johnson years defense money flowed to Boston and Texas and not to Silicon Valley which did not have the near monopoly position that Los Angeles had in defense oriented production. So what did Silicon Valley producers do to respond? They went after the commercial market and became far more adaptable than their competitors. Thus, when the aerospace recession of 1969-76 hit, Silicon Valley was prepared.

The authors duly note that Los Angeles was a major technology center in 1970, but most of that technology was based on aerospace. Unlike northern California where most technology enterprises were small and entry was easy, the ecology of the aerospace industry is based on large units with difficult entry. While job mobility in aerospace is high, for example I spent two years in the aerospace industry and worked at two large firms, capital mobility is not. You didn’t see venture capital funding aerospace start-ups.

Another way in which the tyranny of an installed base affected Los Angeles was the presence of a huge Hispanic population in the area. This meant that when the manufacturing base collapsed, the political structure had to respond to the loss of employment opportunities for that population. The response was to beef up the ports of Los Angeles and Long Beach which made them the entrepot for the flood of goods coming in from Asia. To the authors this activity increased middle and lower income employment, but were nowhere near the high jobs being created in San Francisco. What choice did the political establishment have?

This review doesn’t do justice to the very serious economics work that the authors present. I just wanted to point out to future readers to not completely buy in to the authors’ thesis. Initial conditions are very important and cannot be discounted. However, the authors offer much food for thought and demonstrate that public policy in this area is very difficult to make.

For the full Amazon    URL https://www.amazon.com/review/R11ZGKF3SG0FCL/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv